A 1GHz 1GB compute unit can probably handle 1000 people, with IRC level chatting and light browsing a text protocol like Gemini.
If each "town" has a maximum population before it becomes a grind and people want to move out there's a natural feedback mechanism.
Am elected local council can take care of some (sysadmin) things and vote on new services and boundary (firewall rules).
If people identify with an online location, instead of an amorphous brand maybe they'll take pride in the upkeep and so on.
It's an interesting metaphor/model, and the Tilde project certainly seems to have proved it can work. I wonder what wisdom the inhabitants could give to other federated social projects?